Plan in place to fix millions in misallocated school funds

In this Nov. 16, 2017, photo, Superintendent of Public Instruction Diane Douglas addresses about 50 school district and charter school representatives at her department’s annual MEGA Conference on programs and services for low-income students. In October, the Arizona Department of Education revealed it had misallocated millions in Title I funding, federal dollars for the state’s most economically disadvantaged kids. (Photo by Katie Campbell/Arizona Capitol Times)

In October, the department sent a letter to school districts and charter schools stating $15.2 million in Individuals with Disabilities Education Act, or IDEA, funding had been under-allocated. A 2015 audit by the federal Office of Special Education Programs, or OSEP, also found that $14.3 million was over-allocated, and about 400 charter and district schools were affected.

Now, according to a response from OSEP sent to the state on July 3, the state Department of Education can use set aside funds to make those schools whole.

Set aside funds are carried over from year to year. For example, if a charter school closes in fiscal year 2015, the dollars that would have gone to that school would have instead been set side to make up for unexpected costs, like misallocations.

The department is expected to have fully resolved the issue by fiscal year 2022.

Since October, the department’s position has been that it intended to hold schools “harmless” for the error, meaning districts and charters that received too much funding would not be asked to return the over-allocated funds, and that schools that were shorted would be made whole.

But according to the federal response, representatives from ADE indicated the state did not have the money to repay the schools and asked for the requirement to be waived.

ADE spokesman Stefan Swiat described that request as a “ploy” to extend the timeframe in which the department would repay the schools.

Swiat said ADE was initially given just two to three years to make the shorted schools whole, so the department suggested waiving that requirement knowing that wouldn’t be an option.

Instead, the feds adjusted the timeline, allowing five years by which the state had to repay schools.

That solution may minimize harm for schools impacted by the IDEA error, but Swiat conceded it could also make the state more vulnerable to unforeseen challenges in the future.

“It is a hardship because… this money didn’t come out of thin air,” he said. “We had to strip ourselves of the money that we normally put toward technical assistance, monitoring and professional development. That money would be for us at the state to use, and we’re just passing that along.”

Douglas told the Arizona Capitol Times she doesn’t like to play the “what-if game” and speculate about what the department may lose out on in the years to come.

“We just have to fix this,” she said.

Story continues after document. (The IDEA allocation error is addressed on pages 9-13.)

That money is distributed to schools serving the state’s most economically disadvantaged children.

Beginning in fiscal year 2014 under former Superintendent of Public Instruction John Huppenthal and carrying over into fiscal years 2015, 2016 and 2017, more than 400 district and charter schools received inaccurate Title I allocations.

And while ADE is working with the federal government toward a solution that would not cause further harm, some uncertainty remains.

A draft proposal from the U.S. Department of Education suggested there may be “downward adjustments” in Title I grants to schools that previously received over-allocations.

However, Swiat said that is not the case.

The letter goes on to say the state may determine it has unneeded school improvement funds and choose to re-allocate those dollars to schools that would otherwise see a decline in their allocations.

In other words, it’s a shell game. The feds understand the state will determine those school improvement funds are unneeded and distribute them to schools.

School improvement funds are Title I dollars set aside for the lowest performing schools, the bottom 5 percent.

In addition to misallocating Title I funds to the schools between fiscal years 2014 and 2017, ADE essentially shorted its School Improvement Fund more than $20 million. Rather than first going through that fund, Swiat explained last year, the money went directly to the schools.

According to the current plan, the Title I issue must be rectified by the 2021-2022 school year.

If the problem is not “fully corrected” by then or if the state department fails to comply with the agreement as currently laid out, the state may face some serious consequences.

According to the draft plan, U.S. Department of Education may revoke the state department’s authority to use Title I funds to resolve the issue and may even go on to take additional actions, like recovering non-federal funds in the amount of the misallocations.

Swiat said state representatives will have a call with federal representatives on August 7 to finalize the plan for Title I.

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